BEC 5.1

Question 1

List and define the phases of a typical business cycle

Answer 1

1. An expansionary phase characterized by rising growth in economic activity (real GDP)
2. A peak, or high point of economic activity
3. Contractionary phase characterized by declining growth in economic activity
4. Trough, or low point of economic activity

Recovery phase, during which economic activity starts to increase and return to its long-term growth trend

Question 2

How is a recession defined?

Answer 2

As a period during which real GDP (national output) is falling for at least two consecutive quarters.

Recessions are characterized by falling real output (negative real GDP growth) and rising unemployment.

Question 3

What is the definition of a business cycle?

Answer 3

The rise and fall of economic activity relative to its long-term growth trend.

Business cycles vary in duration and severity.

Some cycles are quite mild; others are characterized by large increases in unemployment and/or inflation.

Business cycles are also called economic fluctuations

Question 4

What are the characteristics of a depression?

Answer 4

Very severe recession.
- Characterized by a sustained period of falling real GDP and high rates of unemployment.
For ex: during the height of the Great Depression, real GDP fell by approximately 33% and one of every 4 workers was unemployed

Question 5

Economists generally agree that business cycles result from what?

Answer 5

Shifts in aggregate demand and aggregate supply

Question 6

List the factors that shift aggregate demand.

Answer 6

• Changes in wealth
• Changes in real interest rates
• Changes in expectations about the future economic outlook
• Changes in exchange rates
• Changes in government spending- Changes in consumer taxes

Question 7

List the factors that shift short-run aggregate supply

Answer 7

• Changes in input (resource) prices

- Supply shocks